It’s now less than a year until the next mid-term congressional elections, and the protracted talk about the critical need to reform our nation's tax laws has yet to result in an actual piece of legislation. So is it time to send the issue of tax reform into hibernation — until 2015 at the very least, after next year's elections? Recent indicators suggest that it very well might be.
Over the last couple of weeks, Sen. Max Baucus (D-MT), Chairman of the Senate Finance Committee, has introduced discussion drafts of various corporate tax proposals. The general reaction to these proposals from corporate America has been similar to Alabama football fans' reaction to their last-second loss to Auburn in the Iron Bowl. Included in these discussion drafts, for example, is an inexplicable and bizarre proposal to require advertising expenditures to be amortized over a 5-year period instead of when they are made. Given the relatively short duration of the modern product life cycle (e.g., cellphones), this proposal can fairly be described as violating every reasonably basic tenet of tax policy that has been in existence since the early 1900s.
The reason why this is relevant is that like much of American politics and policymaking, tax reform has been driven by large corporate multinationals that have been arguing for decades that high U.S. corporate rates are anticompetitive. The reality is that there has not been a nationwide groundswell of support for reforming the individual tax code — perhaps due to the fact that slightly less than half of all American households pay no income taxes, and so don't even have to deal with it.
So why can't they just reform the corporate tax code? The problem is business pass-throughs taxed at the individual level, like partnerships, LLCs, and Subchapter S corporations. If the corporate tax rate were significantly lowered without touching individual tax rates, it would dramatically disadvantage those business arrangements, making them less competitive. In other words, it's very difficult to do one without the other.
So with corporate support waning as some of the first tax reform proposals come to light, it seems increasingly likely that corporate America and the many members of Congress who support their interests will probably hit the pause button on tax reform and wait to see how things look after the 2014 elections.
Of course, Sen. Baucus may still try to mark up a bill in his committee early next year. After all, he is retiring in 2014 and has nothing to lose politically. There is even some lingering talk that Rep. Dave Camp (R-MI), Chairman of the House Ways and Means Committee, might unveil a comprehensive proposal for public comment. But with virtually no likelihood that House Republicans and Senate Democrats can agree on any major issues, much less a minor one, why would rank and file members of Congress want to get behind a controversial tax proposal that’s going nowhere?
The tax reform bear is starting to get very, very sleepy.
Brian Graff is the executive director/CEO of ASPPA and NAPA.
